Sweden rejects the Euro
The margin is decisive, so far it looks like 56 percent against, 42 percent for, read here for one early account of the voting.
It is a tough call, but I think the Swedes did the right thing. Mostly the Swedes feared that the fiscal discipline of the EU will curtail their welfare state, but I don’t think this should have been the main issue. The Netherlands, another small country, has created a generous welfare state (albeit with some spending cuts), prosperity, and relative fiscal responsibility, all under the rubric of the EU. In the long run it is hard to see the EU curtailing Swedish spending more than international capital markets and other competitive pressures would. And it remains to be seen how binding the EU fiscal requirements will prove, after France is violating them.
What is really the advantage if Sweden had adopted the EU? Price competition would have become more intense, as buyers would have an easier time comparing prices across countries with only a single currency unit (admittedly this violates various economic theories, which suggest people “see through” the monetary unit, but it nonetheless seems to be true, noting that in the short run prices get bumped up before later falling). That counts as a real gain, but on the other side the Swedes would have given up the ability to control their own monetary policy.
The Swedes have a history of pursuing a monetary policy independently of Western Europe. The Swedish depression of the 1930s was milder than for the rest of Europe, in part because Sweden broke with gold, devalued, and avoided a disastrous deflation, for one treatment read here.
Supposedly the Swedes don’t now have the “proverbial seat at the table,” but as more countries adopt the Euro, how much is this worth anyway? They decided to keep a whole table of their own, albeit a much smaller one. Does anyone really know how the European Central Bank will operate over time, as more members join, or if a crisis hits? Some critics charge that foreign investors will now stay away from Sweden, due to exchange rate volatility, that would be one factor on the side of Euro adoption.
Perhaps it will prove most important that the Swedish government supported the change, and voters didn’t cooperate. Swedes usually have great trust in their government, more than we are accustomed to seeing in the United States. This may signal a break between Swedish elites, who often have closer ties to Europe, and many Swedish voters. The consequences of today’s vote will likely include more than just macroeconomic policy.
Fabio joins the Marginal Revolution!
We are pleased to announce that Fabio Rojas, newly-minted sociologist (Chicago) and intellectual bon vivant now teaching at Indiana University at Bloomington, will be doing a stint of guest blogging with us at the Marginal Revolution. We look forward to his insights!
An interview with me, on cultural globalization
Here is the link, the interviewer is Nick Gillespie of Reason magazine, reproduced on www.aldaily.com. I talk about global cinema, music, free trade, Islam, and cultural protectionism.
Darwinian politics
Have you ever wondered if political failures might somehow be rooted in man’s nature as a biological being? Paul Rubin has just published a book, Darwinian Politics, Arts and Letters Daily offers this review and summary.
Rubin argues that humans have a long biological experience with constructing political alliances, and our inherited propensities continue to shape our politics. What else does he argue? We often view society as a zero-sum game because early competition for mates was in fact a zero-sum game. We carry this worldview with us. The desire for liberty springs from our early days in hunter-gathered societies, where we were relatively free in political terms. Sports are a reenactment of hunting and bonding rituals. Women are more risk averse than men. We have too much envy for the effective working of modern society, this springs from a tendency to wish to cut down the dominant males in groups. You will note that this is not a politically correct book.
Critics will make two charges. First, Rubin is not a professional biologist and the arguments are not based on his primary research. Second, the major arguments are “just-so” stories rather than the results of testable experiments. Both may be true, but I still would rather read a book that explores interesting and important topics.
Rubin admits his libertarian orientation, but he recognizes that the overall argument does not support libertarianism in every way. For instance he realizes that the desire for paternalism may be rooted very deeply. (Note that Peter Singer tries to ground left-wing ideas in Darwinian argument.) My view is that biological approaches, if you buy into them, strengthen the case for a conservative worldview, and I mean the word conservative in its literal rather than political sense. If politics is rooted in biology, political failures may be very hard to cure. This will support a mix of right-wing and left-wing policies, apologizing for institutional failures on both sides of the partisan spectrum, without necessarily making us feel better about them.
Thanks to Bryce Wilkinson for the pointer, note that readers are encouraged to write to us about bloggable material.
Medieval technology was better than you would think
The Australian BBC reports: “Medieval recipes for gunpowder produce nearly the same firepower as today’s manufactured equivalent, according to recent weapons tests, providing clues as to how the British fleet became one of the largest fighting forces in the world.” The full account is can be obtained through www.cronaca.com.
Liberalization of capital markets
How much does liberalizing capital markets spur economic growth in developing countries? It depends on what kind of country you look at, according to a recent paper by Kenneth Rogoff, formerly chief economist at the IMF, also Professor at Princeton.
He suggests that financial integration should be “approached cautiously.” Many of the benefits kick in only after countries have achieved a particular level of financial integration. Improvements in integration, starting from low levels of integration and development, often have increased the volatility of consumption. Trade integration is associated with faster increases in health and infant mortality, but financial openness is not.
Rogoff sees four problems with financial integration for poorer countries: investors engage in herd behavior, investors engage in speculative attacks on unsound currencies, the risk of contagion, and governments may use financial globalization to overborrow. Financial integration can, in principle, bring great benefits but it is not always used responsibly.
We should take these results seriously. Rogoff is a highly respected economist and he has no starting bias against market globalization. Read his open letter to Joseph Stiglitz, which offers a good statement of his overall perspective on global markets.
Did you know that Rogoff had an earlier career as a chess grandmaster? Read the story he once wrote for Seventeen magazine on this time in his life.
Thoughts on blogging
Daniel Drezner is an excellent political scientist and a first-rate blogger. Here is his recent take on why he has found blogging worthwhile (400,000 unique visits to his page, in the first year).
Here is his advice to new bloggers. He says yes do it, think quality over quantity, and draw attention to your blog by writing about religion and Harry Potter.
For his earlier posts on how blogging has evolved, click here and here. He predicts the ascendancy of academic bloggers, who are used to giving away ideas for free. He also argues that blogging promotes excess certainty of opinion. He cites a Rand Corporation document on how easily electronic communications are misunderstood and lead to unnecessary hard feelings.
An argument why micropayments for Internet content will never work
Will advanced technology allow suppliers to charge people very small amounts for reading web sites, blogs, and other kinds of material? No, says Clay Shirky, mental transactions costs will remain. Here is his bottom line:
The people pushing micropayments believe that the dollar cost of goods is the thing most responsible for deflecting readers from buying content, and that a reduction in price to micropayment levels will allow creators to begin charging for their work without deflecting readers.
This strategy doesn’t work, because the act of buying anything, even if the price is very small, creates what Nick Szabo calls mental transaction costs, the energy required to decide whether something is worth buying or not, regardless of price.
Read more:
Weblogs, in particular, represent a huge victory for voluntarily subsidized content. The weblog world is driven by a million creative people, driven to get the word out, willing to donate their work, and unhampered by the costs of xeroxing, ink, or postage. Given the choice of fame vs fortune, many people will prefer a large audience and no user fees to a small audience and tiny user fees. This is not to say that creators cannot be paid for their work, merely that mandatory user fees are far less effective than voluntary donations, sponsorship, or advertising.
Because information is hard to value in advance, for-fee content will almost invariably be sold on a subscription basis, rather than per piece, to smooth out the variability in value. Individual bits of content that are even moderately close in quality to what is available free, but wrapped in the mental transaction costs of micropayments, are doomed to be both obscure and unprofitable.
Little-known literary gatekeepers
Publishers Weekly, Kirkus, Library Journal, and Booklist are among the first reviewers of most new books. They are not widely read but often they are treated as gospel by the publishing trade. Their evaluations determine how seriously a book is taken by other reviewers, by media, by bookstores, and by filmmakers looking for new script sources. Read this Slate piece on how these outlets work, and why the Internet is decreasing their influence.
Did Mussolini make the trains run on time?
Not according to Urban Legends at www.snopes.com. Consider this:
The Italian railway system had fallen into a rather sad state during World War I, and it did improve a good deal during the 1920s, but Mussolini was disingenuous in taking credit for the changes: much of the repair work had been performed before Mussolini and the fascists came to power in 1922. More importantly (to the claim at hand), those who actually lived in Italy during the Mussolini era have borne testimony that the Italian railway’s legendary adherence to timetables was far more myth than reality.
Why do ticket sellers allow scalping?
It is a common economic puzzle why the prices for various events, such as Super Bowls and rock concerts, do not always clear the market. Why sell tickets cheaply, thereby allowing scalpers to buy them up and later resell them at higher prices, reaping the surplus for themselves?
Canadian Ticketmaster wondered the same, and now they are doing something about it. For many concerts they will auction off some tickets at market-clearing prices. Most groups, however, will auction off only a few of the best tickets, rather than all tickets.
One concert promoter had reservations about the scheme: “From a fan’s point of view, I don’t think this would be fair,” he said. “Obviously, everyone should have equal access to tickets, especially if you’re a fan that lines up overnight. It should be fair and equitable.” Comments of this kind show that either he or I, or perhaps both of us, do not understand this market very well.
Thanks for Eric Crampton for pointing the link out to me. And speaking of musical concerts, it is sad to report that Johnny Cash has died.
The poor love globalization
Read this piece from techcentralstation.com, on how much the poor love globalization.
Here is one money quote:
When asked if cultural imports are “good” for their respective countries, young people in particular seemed to respond favorably in the developing world. Eight-five percent of Russians, 65% of Bangladeshis, 89% of Guatemalans, 94% of Chinese, and even 60% of Egyptians aged 18-29 answered affirmatively.
Here is another:
Even when respondents in the developing world saw conditions in their own countries “getting worse,” a sizeable majority refused to blame globalization for their problems. In fact, of all the countries where a majority of respondents said conditions in their respective country were deteriorating, none showed a majority of respondents putting globalization at fault. The highest percentage blaming globalization came in Indonesia, at 44%. Most others were in the teens.
Furthermore the global poor like multinational corporations, by overwhelming margins, and don’t like anti-globalization protesters.
Two interesting blogs
On corporate law and governance, check out the new Corporation Law and Economics, with occasional discussions of wine as well. Stephen Bainbridge, main blogger, is professor of law at UCLA.
I also learned of a blog on neuroeconomics. Neuroeconomics is a new “movement,” I would define it as trying to better understand economic choice by looking inside the individual brain. Neuroeconomists take the Austrian economists literally in viewing choice as a process. My colleagues Kevin McCabe and Dan Houser are central to this research, they spend much of their time with brain scanners, trying to see which parts of the brain are used for which kinds of economic decisions. Neuroeconomics is a new field, and spans the disciplines, which makes a blog especially useful.
Paul Krugman’s latest
If you read blogs, you probably already have made up your mind about Paul Krugman. When perusing his new The Great Unraveling: Losing Our Way in the New Century, I found myself continually reminded how smart he is, what a good writer he is, and how often he is right. He led the way in publicizing the fiscal irresponsibility of the current Bush administration. I disagree with his politics, but his points have enough force to make me squirm.
If you are wondering, the book is basically his New York Times columns.
I like him best when he stays away from his pet hobby horses. Krugman gets through his essays on Robert Mundell, and the Swedish economic boom — both tight and thought-provoking pieces — without once attacking George W. Bush or calling the Republicans evil.
But these days I can never forget the other Paul Krugman, the one who keeps free market and right-wing bloggers so busy. The Krugman of self-righteousness, sloppiness with the facts, and ad hominem attacks. The Krugman Truth Squad remains. There are many examples of this other Krugman, I was struck by one particular example, taken from Donald Luskin:
Paul Krugman, September 2, 2003:
“I admire the virtues of free markets as much as anyone.”
Now this could make a great party game. Let’s see, where do I begin…? How about, Paul Krugman, June 20, 1999:
“The question of how to keep demand adequate to make use of the capacity has become crucial. Depression economics is back. …in a world where there is often not enough demand to go around, the case for free markets is a hard case to make.”
My take: Well, I guess it depends on what you mean by “as anyone.”
Addendum: Perusing the book more, I find Krugman (p.27) also writes: “I like the theory of efficient financial markets as much as anyone.” Four pages later, he writes, from a different column: “The more I look at the amazing rise of the U.S. stock market, the more I become convinced that we are looking at a mammoth psychological problem.” He also writes of “Seven Habits of Highly Defective Investors” (p.27) and calls them “an extremely dangerous flock of financial sheep.” (p.30)
How many heat deaths?
“Portugal scrapped its initial estimate of 1,300 deaths and lowered it to just four,” from today’s cnn.com. Germany claims 40 heat-related deaths this summer.
The British claim 907 extra deaths across the span of a very hot week. Here are the Italians: “The Health Ministry said on Thursday 34,071 people over the age of 65 died between July 16 and August 15, compared with 29,896 in 2002 — a 14 percent increase.” French estimates range between 10,000 and 15,000 deaths.
How much of this was avoidable and how much was random movement in the numbers? In net terms, how many people actually died prematurely?
Consider the stability of mortality statistics. I checked the UK Office of National Statistics tables, for England and Wales, and was surprised how much death rates bounce around (at the link you need to go through some work to create the file in readable form, follow the instructions).
Take deaths over the time period 1985-2001. Rounding off the figures to the thousands, the median change in death numbers, from one year to the next, is 9,000 (the totals run from 530,000 to 590,000 deaths per year). The biggest change we see across a year is about 25,000. We shouldn’t expect those changes to be distributed perfectly evenly across the months. But if we divide by 12 “naively,” it would be very common for death tallies, on a monthly basis, to change by 700 to 800 people, when comparing one year’s August to the previous year’s August.
Now let us go back to the British figure. If the number of deaths jumps in a single week by 907, compared to an average change, this is out of the ordinary but not unthinkable. On the other hand, random noise plays a very small relative role when the monthly death rate jumps from 10,000 to 15,000.
These people all would have died anyway, the next question is when. Twelve months from now, will the yearly death rate stand above its average or will we now see fewer deaths for a while? To what extent did the heat redistribute deaths from September and October to August? (Eli Lehrer raises the further interesting question of whether some of these people died through a psychological effect, given that the media were reporting that a “heat death time” was upon us.)
Note that the richer and more technologically advanced a society, the fewer heat wave deaths we should expect, read here and here. For one thing, richer people are more likely to buy air conditioners. Everyone points the finger at negligent children, or the French hospital systems or August vacations. We can also blame the sluggish economic growth rates of the Continent. Social welfare states can be quite inhumane, once we examine secondary consequences.
The bottom line: something very bad did happen in France and Italy.
Something less bad happened in Britain. But we still have not gotten to the bottom of how bad or why.